Federal Shutdown Affecting One-Fourth of Mainstreet Economy

October blizzards in western Nebraska and South Dakota are expected to have significant negative impacts on livestock producers in the weeks and months ahead.

Approximately one-fourth of bank CEOs reported that the federal shutdown had a negative impact on their local economy.

Bankers expect cash farmland rents to expand by only 2.5 percent over the next 12 months.

Approximately 87.9 percent of bankers support the construction of the Keystone XL pipeline.

Growth for the Rural Mainstreet economy remains positive according to the October survey of bank CEOs in a 10-state area.

Overall: The Rural Mainstreet Index (RMI), which ranges between 0 and 100 with 50.0 representing growth neutral, rose for the first time since June of this year to 54.3 from 52.4 in September.

“While the overall index is up for the month, I still expect growth in the Rural Mainstreet Economy to be slower in the months ahead. Agriculture commodity prices for select products have declined significantly and are approaching breakeven for some producers,” said Ernie Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton University.

Farming: The farmland-price index declined for the 10th time in the past 11 months. The October index fell to 50.9, its lowest level since January 2010, and down from September’s 54.0. “Weaker agriculture commodity prices and poor weather conditions in some parts of the region lowered the farmland price index. Clearly, farmland price growth and cash rent expansions in the months ahead will not be as healthy as has been experienced in the past couple of years,” said Goss. Even so, we are still seeing some record prices for cropland in the region. For example, James Brown, president of Hardin County Savings Bank in Eldora, Iowa, reported a record sale of 80 acres in Grundy County last week for $17,600 per acre.

The early snowstorms in Nebraska and South Dakota are expected to have significant negative impacts on livestock producers in the months ahead and will likely spill over into the broader economies in those areas. According to Todd Douglas, CEO of the First National Bank in Pierre, S.D., “Recent record snowfall in the western part of the state is estimated to have caused up to 25,000 cattle deaths which will have a major impact on producers in the areas hit hardest by the storm. However, winter wheat progress is promising with the recent moisture over the rest of the state.”

This month bankers were asked to how much they expect farmland cash rents to increase by over the next 12 months. On average, CEOs estimate that cash rents will expand by only 2.5 percent. This is down significantly from the 9.3 percent expected growth reported by bankers six months earlier. “Bankers clearly expect farmland prices and rents to grow at a much slower pace over the next year,” said Goss.

Farm equipment sales declined for the fourth straight month. The October index slumped to 44.6, its lowest level since March 2010, and down from 48.3 in September. “Sales are declining and inventories are growing as farmers pull back on their purchases of big ticket items,” said Goss.

Banking: The loan-volume index remained above growth neutral for the month at 64.7, though it was down from September’s 73.5. The checking-deposit index fell to 48.3 from September’s 56.3 while the index for certificates of deposit and other savings instruments plummeted to a very fragile 35.4 from 43.8 in September.

Hiring: October’s hiring index jumped to 56.1 from September’s 53.2. “The upturn in hiring was unexpected and encouraging reflecting growth outside of agriculture,” said Goss. Bankers were asked whether the President should approve construction of the northern portion of the Keystone XL pipeline. Almost 87.9 percent supported construction of the XL pipeline. Only 3.5 percent were opposed with the remaining 8.7 percent indicating that they were unsure or had no opinion.

However some bankers expressed very strong opposition to the XL pipeline. For example, Kelly Hammerlun, president of Pinnacle Bank in Imperial, Neb., said, “The government should not allow any construction of the pipeline until they provide some assistance in regulating the contracts they are bullying the land owners into signing.” Hammerlun argues that the contracts are full of landowner liability down the road.

Confidence: The confidence index, which reflects expectations for the economy six months out, was unchanged from September’s weak 44.7. “Our surveys were completed this week a day before the agreements were achieved in the U.S. Congress. The potential for a continuation of the federal government shutdown combined with the failure to raise the debt ceiling certainly weighed on bankers’ economic outlook,” said Goss

This month bankers were also asked to gauge the impact of partial federal government shutdown on the area economy. Approximately 25.9 percent assessed that the impact was negative while the remaining 74.1 percent reported little or no impact from the shutdown. Home and retail sales: The October home-sales index declined to a still solid 58.0 from September’s 60.2. The October retail-sales index rose to 52.6 from 49.2 in September.

“With the uncertainty surrounding the Washington Congressional deliberations, I was surprised to see retail sales move higher. The Rural Mainstreet housing market continues to rebound at a healthy pace,” said Goss.

Each month, community bank presidents and CEOs in nonurban, agriculturally and energy-dependent portions of a 10-state area are surveyed regarding current economic conditions in their communities and their projected economic outlooks six months down the road. Bankers from Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wyoming are included.

This survey represents an early snapshot of the economy of rural, agriculturally and energy-dependent portions of the nation. The Rural Mainstreet Index (RMI) is a unique index covering 10 regional states, focusing on approximately 200 rural communities with an average population of 1,300. It gives the most current real-time analysis of the rural economy. Goss and Bill McQuillan, president of CNB Community Bank of Greeley, Neb., created the monthly economic survey in 2005.

Colorado: For the 13th straight month, Colorado’s Rural Mainstreet Index (RMI) remained above 50.0 for the 13th straight month. The October RMI advanced to a healthy 59.1, a regional high, from September’s 57.2. The farmland and ranchland price index fell to a still strong 65.1 from last month’s 67.7. Colorado’s hiring index for October expanded to 65.0 from September’s 62.4.

Illinois: The RMI for Illinois advanced to 54.1 from September’s 52.2. The RMI has now remained at or above growth neutral for 13 straight months. Farmland prices slumped to 43.1 from 46.2 in September. The state’s new-hiring index rose to 50.4 from September’s 47.7. According to Jim Ashworth, vice chairman of CNB Bank & Trust in Carlinville, “Grain crop yields are still being reported as ‘good’, although the corn did not dry down as far as desired due to a relatively cool growing season.”

Iowa: The September RMI for Iowa climbed to 55.3 from September’s 53.4. The farmland-price index for October fell to 50.6 from 53.2 in September. Iowa’s new-hiring index for October rose to 55.4 from September’s 52.7. Kansas: The Kansas RMI for October rose to 53.6 from September’s 51.7. The farmland-price index for October slipped to 45.7 from September’s 48.2. The state’s new-hiring index increased to 52.1 from 49.4 in September. Dale Bradley, chairman of the Citizens State Bank in Miltonvale, typified some of the frustration with Washington saying, “We need a good farm bill to be passed.”

Minnesota: The October RMI for Minnesota expanded to 53.7 from 51.8 in September. Minnesota’s farmland-price index rose to a weak 48.3 from September’s 39.5. The new-hiring index expanded to 46.3 from September’s 43.6. According to Pete Haddeland, CEO of First National Bank in Mahnomen, “Crops look good but yields are down a little. Good harvest.”

Missouri: The October RMI for Missouri declined to a still solid 55.4 from September’s 56.8. The farmland-price index for October sank to 63.2 from September’s 81.0. Missouri’s new-hiring index expanded to 73.9 from September’s 71.3.

Nebraska: After moving below growth neutral for January, Nebraska’s Rural Mainstreet Index has been above growth neutral for nine straight months. The October RMI increased to 54.9 from 53.0 in September. The farmland-price index for October dipped to 45.5 from September’s 48.1. Nebraska’s new-hiring index stood at 51.9, which was up from 49.3 in September. Bill McQuillan, president of CNB Community Bank in Greeley, said, “The Early 2013 soybean harvest yields are 10 to 15% above historical averages. Local cattle prices continue to be very, very strong and positive for our local producers.”

North Dakota: The North Dakota RMI for October advanced to 57.9 from 56.0 in September. The farmland-price index plummeted to 45.5 from 70.0 in September. North Dakota’s new-hiring index grew to 66.6 from September’s 63.9.

South Dakota: The October RMI for South Dakota sank to 48.7 from September’s 55.7. The farmland-price index for the state for October was unchanged from September’s 49.8. South Dakota's new-hiring index for October expanded to 54.8 from 52.2 in September. According to David Callies, CEO of Miner County Bank in Howard, “Harvest is going well with yields about average. Government shut down continues to be a big problem.”

Wyoming: The October RMI for Wyoming expanded to 55.1 from September’s 53.2. The October farmland and ranchland price index slumped to 43.6 from 46.2 in September. Wyoming’s new-hiring index moved higher to 50.7 from September’s 48.0.

Next month’s survey results will be released on the third Thursday of the month, Nov. 21.